Investment test

Investment class. Here is 18 m/c questions, half is true or false, the rest is calculation. Please give the explanation to each answer.
You can search bond data by CUSIP at the FINRA website:
http://finra-markets.morningstar.com/BondCenter/Default.jsp
You must use the EXCEL help function for Yield and Price functions to solve the bond valuation problems.

QUESTION 1

Being able to estimate future earnings of a company over at least five years is a critical decision variable for Warren Buffet when he analyzing whether to buy an interest in a company.

 

  1. A) True
  2. B) False

 

QUESTION 2

 

Please use the following data to calculate the yield to maturity the bond.

Settlement 1/15/2015
Maturity 1/15/2045
Rate 5%
price $100.00
redemption $100.00
frequency 2
basis 0
  1. a) 5.85%
  1. b) 5%
  1. c) 2.5%
  1. d) 10%

 

QUESTION 3

The bond with the CUSIP 345370BM1 is below investment grade by Standard & Poor’s.

 

  1.  a) True
  2. b)  False

 

 

QUESTION 4

 

Please use the following data to calculate the price of the bond.

Settlement

1/15/2015
Maturity 1/15/2045
Rate 10%
yield 8.00%
redemption $100.00
frequency 2
basis 0

 

 

  1. a) $80
  2. b) 122.62
  3. c) $86.34
  4. d) $100

QUESTION 5

Using annual compounding, what is the present value of a $39,703 sum to be received in 16 years when a 9% rate of return can be earned on investment?

  1. a) $9,406.
  2. b) $10,000.
  3. c) $5,000.
  4. d) $157,633.

 

QUESTION 6

Please calculate the Future Value of the Present Value based on the following information.

time rate present value
0 $100,000
1 0.0000%
2 0.5000%
3 1.0000%
4 2.0000%
5 4.0000%

 

 

 

  1. a) $106,455.25
  2. b) $100,000
  3. c) $107.676.50
  4. d) $110,000

QUESTION 7

Please use the following data to calculate the yield to maturity the bond.

Settlement 1/15/2015
Maturity 1/15/2045
Rate 10%
price $80.00
redemption $100.00
frequency 2
basis 0

 

  1. a) 5.58%
  2. b) 8.25%
  3. c) 11.25%
  4. d) 12.58%

QUESTION 8

A coupon bond which pays interest annually, has a par value of $1,000, matures in 5 years and has a yield to maturity of 12%. If the coupon rate is 9%, the intrinsic value of the bond today will be __________.

  1. a) $855.55
  2. b) $891.45
  3. c) $926.00
  4. d) $1,000.00

 

QUESTION 9

The present value of a future sum will rise with a fall in the:

  1. a) interest rate.
  2. b) investment period.
  3. c) future sum.
  4. d) none of these.

 

QUESTION 10

A BB rated corporate bond with a four years left to maturity will always have a higher yield to maturity than a U.S. Treasury bond that has four years left to maturity.

  1.  a) True
  2.  b) False

 

 

QUESTION 11

 

settlement 1/17/2014
maturity 1/13/2034
rate 8%
price $90
redemption $100
frequency 2

Based on the above information what is the bond’s yield to maturity?

  1. a) 7.78%
  2. b) 15.2%
  3. c) 8%
  4. d) 9.8%

QUESTION 12

Since U.S. Treasury securities are guaranteed by the government of the United States; a rise in interest rates will not affect the value of the US Treasury component of the BlackRock High Yield Bond Portfolio.

 

  1.  a) True
  2.  b) False

 

QUESTION 13

 

settlement 1/13/2014
maturity 1/13/2034
rate 8%
price $120
redemption $100
frequency 2

Based on the above information what is the bond’s yield to maturity?

  1. a) 8%
  2. b) 5.64%
  3. c) 6.23%
  4. d) 8.2%

 

QUESTION 14

Base your answer on yearly data from the following series that is available from Board of Governors of the Federal Reserve Website via the DDP Program.

10-year Treasury constant maturity (H15/H15/RIFLGFCY10_N.M)

Moody’s Aaa (H15/H15/RIMLPAAAR_N.M)

Moody’s Baa (H15/H15/RIMLPBAAR_N.M)

 

In October of 2001 investors demanded a larger yield premium to hold corporate bonds rated Baa by Moody’s relative to the ten year treasury than in June of 2006.

True

False

 

 

QUESTION 15

 

Bonds with lower ratings but the same maturities have higher yields (yield to maturity). This is confirmed by FINRA data.

True

False

 

 

QUESTION 16

 

Please calculate the Future Value of the Present Value based on the following information.

time rate present value
0 $100,000
1 4.0000%
2 2.0000%
3 1.0000%
4 0.5000%
5 0.0000%
  1. a) $107.676.5
  1. b) $106,345.50
  1. c) $214,500.00
  1. d) $108,655.2

 

QUESTION 17

Please use the following data to calculate the price of the bond.

Settlement 1/15/2015
Maturity 1/15/2045
Rate 10%
yield 10.00%
redemption $100.00
frequency 2
basis 0

 

$120
$95.25
$110
$100

 

QUESTION 18

Please use the following data to calculate the price of the bond.

Settlement 1/15/2015
Maturity 1/15/2045
Rate 10%
yield 12.00%
redemption $100.00
frequency 2
basis 0
  1. a) $110.25
  2. b) $112.43
  3. c) $83.84
  1. d) $100

 

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